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Home » An Introduction to Operations Management » Flow rate / throughput, flow unit, inventory and flow time

Flow rate / throughput, flow unit, inventory and flow time


The three most important performance measures of a business process are flow rate / throughput, inventory and flow time. In the following definitions, the term “flow unit” will be used a lot. A flow unit is the basic unit of analysis in any given scenario (customer, sandwich, phone call etc.).

Flow rate / throughput: The number of flow units (e.g. customers, money, produced goods/services) going through the business process per unit time, e.g served customers per hour or produced parts per minute. The flow rate usually is an average rate.

Flow time: The amount of time a flow unit spends in a business process from beginning to end, also known as the total processing time. If there is more than one path through the process, the flow time is equivalent to the length of the longest path.

Inventory: The number of flow units that are currently handled by a business process, e.g. the number of customers in a store, the number of enrolled students in an university etc. pp.

It should be kept in mind that the definition of inventory in Operations Management is different from the definition used in accounting. While the number of bottles on stock qualifies as inventory in both Operations Management and accounting, the number of patients waiting at a dentists office would not be seen as inventory in accounting – but is, in fact, inventory in Operations Management.

These lecture notes were taken during 2013 installment of the MOOC “An Introduction to Operations Management” taught by Prof. Dr. Christian Terwiesch of the Wharton Business School of the University of Pennsylvania at Coursera.org.
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16 Comments

  1. […] rate: Even though the flow rate was previously defined, the definition needs to be augmented as the flow rate being the minimum of demand and process […]

  2. […] labor: The cost of direct labor is defined as the total wages per unit of time divided by the flow rate per unit of time. It tells us, how many Dollars (or Euros) are being spent in order to get one flow […]

  3. […] was named after the American professor John Little (1950s). It defines the relationship between the inventory, the flow rate and the flow time, who have all been already defined […]

  4. […] being seen as a black box of sorts. A company has a competitive advantage if it can turn its inventory faster then the competitors […]

  5. […] There are five major reasons for holding inventory: […]

  6. […] many flow units (e.g. customers in a shop, patients in a hospital) do not at all need the very same treatment or […]

  7. […] Inventory: Too many flow units in the system. Inventory has already been discussed at length during the first week. It is by far the biggest source of […]

  8. […] bottleneck. The most important definition here is that of the batch: A batch is the number of flow units, which are produced between two set-ups. To calculate the capacity of a process with respect to […]

  9. […] larger batch sizes lead to (the need for) more inventory, the batch size has to be balanced and chosen with both the positive (greater capacity) and […]

  10. […] batch size was previously defined as the number of flow units that are produced between two set-ups. While this definition is correct, it does not take into […]

  11. […] Only then will the batch size not lead to the creation of a new bottleneck or additional inventory pile-up. This is calculated […]

  12. […] can a business respond to customer demands? If customers are made to wait, they are turned into inventory, potentially resulting in a unpleasant customer experience. Any customer waiting time is also an […]

  13. […] output and the demand at the end of the process. The process therefore needs to start with more flow units then actually needed, so that enough flow units will be left over to satisfy demand. By working the […]

  14. […] are lost. If it occurs on the very last process step, we have to forfeit the value of an entire flow unit (including profit). The location of the bottleneck is especially important here. This is because […]

  15. […] tend to (a) produce more defects over time and (b) cause higher monetary losses once the defective flow units get through to the process bottleneck. Both problems provide huge incentives for figuring out how […]

  16. Anonymous says:

    how the flow rate is min demand and capacity

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